Wells Fargo Sees Chance of Higher Loss Reserves for Energy

  • CFO Shrewsberry says ‘too early to call’ if losses hit bottom
  • Spot oil prices have surged 85% since February’s 12-year low

Wells Fargo & Co. may have to set aside more money to cover bad energy loans even as oil prices have rebounded this year, Chief Financial Officer John Shrewsberry said.

“It’s too early to call it as being over or enough or something else,” Shrewsberry said Wednesday at an investor conference in New York.

Wall Street lenders are seeking to assure investors they’re able to deal with the risks tied to loans they made to oil producers after crude prices fell more than 50 percent in the last two years. Wells Fargo, the world’s most valuable bank, reserved $1.7 billion to cover potential losses on energy loans in the first quarter, up about $500 million from the end of 2015. The bank had $17.8 billion in outstanding loans to the industry as of March 31, about 1.9 percent of its portfolio.

Oil has surged about 85 percent since touching a 12-year low in February. The Organization of Petroleum Exporting Countries, meeting on Thursday in Vienna, will probably stick to its policy of squeezing out rivals by maintaining production as the price rally helps justify the group’s strategy, according to analysts surveyed by Bloomberg.

Soured energy loans doubled in the second quarter at Canada’s biggest banks

Rising oil prices are helpful for banks and other creditors seeking to restructure debt of distressed energy producers, though a better indication that the energy industry’s fortunes are turning would be the “unfreezing” of companies’ ability to buy and sell assets, Shrewsberry said.

“I don’t think it’s as simple as a spot price being a game changer” for predicting defaults, he said. “You have complex capital structures. They have to be worked through.”

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